Using the law as a compass to point readers in the right direction, I focus on the legal and business issues of the day as it pertains to creatives, athletes, entrepreneurs and business owners.

9.03.2011

Power Play: Netflix Setback Not Really A Setback

New York magazine's Josef Adalian ruminates on Starz recent rejection of Netflix and ties it with Netflix's mishandling of their price increase as part of a larger concern the movie industry is having with streaming content.

...It's not that Netflix or Starz don't want you to be able to watch video through your Internet connection. Indeed, Netflix's business model is now almost entirely built around streaming video, with DVD mailings increasingly an afterthought. What both companies — and plenty of studios and networks — have a problem with is the idea that Joe Consumer should be able to access their content at rates dramatically lower than what you used to pay back in the dark ages of, say, 2005 — you know, when you subscribed to a couple of premium movie channels, bought full seasons of TV shows at Best Buy, and rented a new release at Blockbuster every other Friday night. While you might like the idea of paying less than $10 bucks a month for an all-you-can-watch video diet, Hollywood saw what happened when the music business lost control of its content. It does not want to go down the same road.

Look at the statement Starz issued yesterday when it pulled out of Netflix: It said it was acting to "protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content." In other words, Starz suits didn't think the money Netflix was offering to renew its deal (perhaps as much as $300 million, per the Los Angeles Times) was enough to offset the potential subscriber loss from cable customers who wised up and realized it made no sense to keep paying up to $15 per month for Starz on cable when they could get virtually the same content, and lots more, via an $8 Netflix Instant subscription. HBO, the dominant pay cable channel, clearly thinks this way. It's never been on Netflix and instead has been sinking serious cash into hyping its HBO Go service, which lets anyone with an HBO subscription stream virtually anything that's ever been on the channel.

Still, Netflix will probably not only survive (the price increase is still cheaper than cable and movie tickets) but will be forced to expand into something larger - producing and acquiring rights to original content.

...Netflix boss Reed Hastings doesn't seem concerned. He quickly issued a counter-statement saying hardly anyone was watching Starz content on Netflix (just 8 percent of all streams) and that he couldn't wait to reinvest the money Netflix won't be giving to Starz on new content, à la Netflix's upcoming original Kevin Spacey series House of Cards. We talked to a top talent agent who says showrunners are salivating at the prospect of having Netflix step up to finance pet projects, and predicted Cards would be just the first of many originals funded by the company.

Atul Bagga of ThinkEquity, told [NYmag.com], "Studios are starting to put their foot down. They weren't paying attention to streaming at all, but now they see an opportunity to monetize. And they're going to take it." And you, in turn, are going to have to pay. Hollywood greed? Yes, though considering how much money they used to dependably get from DVD sales and rental chains that they're no longer getting, they're just trying to crawl their way back to preexisting base levels of greed. But it's also clear the movie and TV businesses are trying to learn from the music industry's many, many mistakes.

Pretty much everyone is watching as consumers; hoping that our streaming prices don't go too far up from the sweet affordable spot it's been until now. But many of us are also watching as filmmakers; hoping that, at the least, the distribution deals weakened by the shrinking DVD market gets a boost from the still uncharted territories of the streaming video market.

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I am a lawyer specializing in the areas of sports/entertainment, business, intellectual property and nonprofits. Nothing on this blog is legal advice, it's just information and opinion. If you want legal advice and more, feel free to visit my professional website and hire me. (Fill out this short intake form for a free 15-minute consultation: HERE).